Anonymous
Post 08/22/2023 10:12     Subject: Mortgage recast vs extra payments
Anonymous wrote:Unpopular opinion ‼️ 🚨

We are 45, have a child headed off to college next year, another one 3 years behind him and are mortgage free. It is the most liberating feeling for me. When I have a bad day at work I’m like, whatever. I get to finish out the rest of my life without a mortgage.


If transferring money from your left hand pocket to right hand pocket makes you feel better, good for you.

But it does not make sense. Especially for many people who have sub 3% mortgage rates.

Anonymous
Post 08/22/2023 10:09     Subject: Mortgage recast vs extra payments
Anonymous wrote:Unpopular opinion ‼️ 🚨

We are 45, have a child headed off to college next year, another one 3 years behind him and are mortgage free. It is the most liberating feeling for me. When I have a bad day at work I’m like, whatever. I get to finish out the rest of my life without a mortgage.


Yup! The mental aspect of being debt free is underrated.
Anonymous
Post 08/22/2023 09:32     Subject: Mortgage recast vs extra payments
Unpopular opinion ‼️ 🚨

We are 45, have a child headed off to college next year, another one 3 years behind him and are mortgage free. It is the most liberating feeling for me. When I have a bad day at work I’m like, whatever. I get to finish out the rest of my life without a mortgage.
Anonymous
Post 08/21/2023 23:13     Subject: Re:Mortgage recast vs extra payments
Mathematically you are better putting it all in the market and not paying down a 4% mortgage. This is because of the crazy low rate, I’d have a much different answer at 8%.

That being said if you are looking to de-risk, you could put $300k in the market and then put $100k to the mortgage and recast to get a lower monthly payment. That way you are hedging your bet a bit.

I did something similar a few years ago. Rates were different then and I paid down enough to refi into a 15 year with comfortable payments.
Anonymous
Post 08/21/2023 18:10     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:the top federal tax rate is 37%.

treasuries are not subject to state/local tax.

3 week - 30 year treasuries yield 4.45 -5.51%. After tax this is 2.8% - 3.47%. At 24% tax rate it's 3.4% - 4.2%.

If you choose to pay down a dollar of mortgage early instead of buying treasuries at higher after tax yields you are giving up liquidity and taking higher risk while deploying capital at a low return. You could even take a little more risk (investment grade bonds, stocks, etc, but I want to use the pure treasury to illustrate that it's just not time to pay down mortgage early).

If you've won the right to be suboptimal by accumulating a boatload of assets such that you just don'e want to deal with having a mortgage than fine, but if you're asking questions here, you probably haven't done that.

Don't take more risk for lower return. Don't give the banks and mortgage backed securities holders of america back their money before you have to. a low rate mortgage is an asset.


This is basically correct. The topic of this thread is however recasting on top of prepayment. With recasting a low interest mortgage, and then making only the lower payments and investing the difference, you in essence take on a low-interest loan (at the rate of your mortgage) to invest in risk-free higher-interest vehicles like treasuries. It's a form of leverage. In theory, this works as long as your gains over the time frame you're considering is larger than the recasting fee (and as long as treasury short term rates stay this high). Plus recasting has the side benefit of increasing your flexibility by lowering your required payments. It's a win-win if feasible.

If my mortgage weren't already almost paid off, I'd consider it. I hadn't heard of recasting before this thread.


Anonymous
Post 08/21/2023 18:00     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.

Actually, it costs you money, it doesn't save money. When you recast, you will have paid more in interest by the time you will have paid the mortgage back compared to if you didn't recast.

Perhaps you meant that you had lower monthly payments, but it wasn't savings. By recasting your mortgage, you essentially took out a loan to get the monthly "savings."
He /she recasted twice, so I'm pretty sure they know what they did. You can go to an online mortgage recast calculator and see the results and the benefits to the participant. You put down a sizable lump sum, and your loan gets reamortized. So with less principal due your monthly payment decrease and the total interest paid at completion of the loan will decrease. So you do end up saving money on interest paid. The term of the loan is not changed, as when you make extra payments the loan will get paid off faster.

I'm retired and live in NOVA with increasing property taxes each year. If and when in the next few years, a few stock positions blossom, I may prune stocks(cyclical stocks) and apply some of that money into a recasting. Something I'm considering for cash flow purposes. I have no intention in paying off my 3.25% now 27 yr loan early. Each case is specific to that person's circumstances. And the math doesn't lie, financial institutions are underwater on all those low mortgages.

Not, this statement is incorrect as written. You need to specify your baseline here. There are three scenarios
A. You pay off the mortgage as usual.
B. You prepay some, then recast and then make the lower payments until the end of the original period
C. You prepay some, and make the original payments to the new maturity (before the original loan period ends). Whether you recast or not doesn't matter.

At the end of the day, you will have paid the most in interest in scenario A and the least in scenario C. B is in the middle.
Your statement seems to be saying that you save by doing B compared to A, which is true. However, doing C saves even more interest and doesn't depend on recasting.
Recasting never saves you interest, it's prepaying that does. What recasting buys you is increased flexibility and higher cashflow/higher ability to invest excess income.

Here's a good article if you want to learn more about the details.
Anonymous
Post 08/21/2023 16:53     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.

Actually, it costs you money, it doesn't save money. When you recast, you will have paid more in interest by the time you will have paid the mortgage back compared to if you didn't recast.

Perhaps you meant that you had lower monthly payments, but it wasn't savings. By recasting your mortgage, you essentially took out a loan to get the monthly "savings."
He /she recasted twice, so I'm pretty sure they know what they did. You can go to an online mortgage recast calculator and see the results and the benefits to the participant. You put down a sizable lump sum, and your loan gets reamortized. So with less principal due your monthly payment decrease and the total interest paid at completion of the loan will decrease. So you do end up saving money on interest paid. The term of the loan is not changed, as when you make extra payments the loan will get paid off faster.

I'm retired and live in NOVA with increasing property taxes each year. If and when in the next few years, a few stock positions blossom, I may prune stocks(cyclical stocks) and apply some of that money into a recasting. Something I'm considering for cash flow purposes. I have no intention in paying off my 3.25% now 27 yr loan early. Each case is specific to that person's circumstances. And the math doesn't lie, financial institutions are underwater on all those low mortgages.
Anonymous
Post 08/21/2023 13:27     Subject: Re:Mortgage recast vs extra payments
the top federal tax rate is 37%.

treasuries are not subject to state/local tax.

3 week - 30 year treasuries yield 4.45 -5.51%. After tax this is 2.8% - 3.47%. At 24% tax rate it's 3.4% - 4.2%.

If you choose to pay down a dollar of mortgage early instead of buying treasuries at higher after tax yields you are giving up liquidity and taking higher risk while deploying capital at a low return. You could even take a little more risk (investment grade bonds, stocks, etc, but I want to use the pure treasury to illustrate that it's just not time to pay down mortgage early).

If you've won the right to be suboptimal by accumulating a boatload of assets such that you just don'e want to deal with having a mortgage than fine, but if you're asking questions here, you probably haven't done that.

Don't take more risk for lower return. Don't give the banks and mortgage backed securities holders of america back their money before you have to. a low rate mortgage is an asset.

Anonymous
Post 08/21/2023 12:58     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.


I do understand recasting. My whole point was to keep the payments unchanged in order to pay down the mortgage quicker. Sure, your monthly payments do go down when you recast, but it does not save you any money in the long run.


DP but OP wasn't asking about saving money in the long run. "DH wants to have cash on hand to be able to walk away from a job if he ever wanted to." Recast doesn't "save" money but it does free up money, which would have the desired effect for their family while meeting both her and her DH's goals. A smaller monthly obligation means more flexibility for him; putting a lump sum in means a smaller debt obligation for her. Win-win.

This may not be what OP is asking for, but this makes a lot of sense financially. Either OP's DH makes no money/is a very close to retirement or he is delusional that he can walk away from his job, just because he now has, say $800k extra in savings.

I would put it all in the market, but I don't have the same set of considerations.
Anonymous
Post 08/21/2023 12:52     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.


I do understand recasting. My whole point was to keep the payments unchanged in order to pay down the mortgage quicker. Sure, your monthly payments do go down when you recast, but it does not save you any money in the long run.


DP but OP wasn't asking about saving money in the long run. "DH wants to have cash on hand to be able to walk away from a job if he ever wanted to." Recast doesn't "save" money but it does free up money, which would have the desired effect for their family while meeting both her and her DH's goals. A smaller monthly obligation means more flexibility for him; putting a lump sum in means a smaller debt obligation for her. Win-win.

I would put it all in the market, but I don't have the same set of considerations.
Anonymous
Post 08/21/2023 11:55     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.


I do understand recasting. My whole point was to keep the payments unchanged in order to pay down the mortgage quicker. Sure, your monthly payments do go down when you recast, but it does not save you any money in the long run.
Anonymous
Post 08/21/2023 10:00     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.


DP. Sounds like you don’t understand recasting. It lowers your payment and keeps the term the same. Not recasting keeps the payment the same and the mortgage term will end early.
Anonymous
Post 08/21/2023 09:49     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.

Actually, it costs you money, it doesn't save money. When you recast, you will have paid more in interest by the time you will have paid the mortgage back compared to if you didn't recast.

Perhaps you meant that you had lower monthly payments, but it wasn't savings. By recasting your mortgage, you essentially took out a loan to get the monthly "savings."
Anonymous
Post 08/21/2023 07:38     Subject: Mortgage recast vs extra payments
Anonymous wrote:We are mid 30s and we chose to invest the significant proceeds of our first home sale into our brokerage versus recasting our new, larger mortgage. However in your case I would probably lean towards a recast and continue to make the same payments to pay it down faster. Approaching retirement is a game changer.

If you continue to make the same payments, then you don't need to recast.

Recasting a mortgage means reamortizing it, which restores your original maturity and lowers your mandatory monthly payments after you have prepaid some principal.
Normally, when you prepay principal, you're required to make the same monthly payments but the maturity date moves up (you will have paid the mortgage off sooner.)

With or without a recast, a prepayment should be considered an illiquid investment with a ROI equal to the mortgage's interest rate over the remaining life of the mortgage.

Read: here for more info.

A voluntary payment decrease increases the length of the loan - so "lowering payments" and "ending payments" are two mutually conflicting goals. For the former, you recast. For the latter, you don't and keep your high monthly obligations. From an investment point of view, recasting would allow you to direct the difference between your current and the future payment either towards day-to-day expenses or to invest it; you're essentially getting a mortgage-interest loan for the amount your payment is lowered by.

Personally, unless your current mortgage payments have become too burdensome I would not recast. It's commonly a thing for people who due to life changes can't make their payment anymore but who have previously aggressively payed their mortgage down. Recasting for financial gain seems essentially gambling.
Anonymous
Post 08/21/2023 06:28     Subject: Re:Mortgage recast vs extra payments
Anonymous wrote:Here’s what I would do. Take half of your inheritance and pay down the mortgage. Do not recast your mortgage, but keep the same monthly payments as before. Invest/save the rest based on your risk tolerance. Depending on when you retire, your mortgage will be very low because of all the extra payments. (There are online calculators that you can find.) At that time, you can choose to recast.

Best of luck!


You don’t get recasting. If you pay a lump sum or even extra monthly you want to recast. It saved us a lot of money. You can recast multiple times. We did it twice.